Dur, R. and Tichem, J. (2015). Altruism and Relational Incentives in the Workplace Journal of Economics and Management Strategy, 24(3):485--500.
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Affiliated author
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Publication year2015
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JournalJournal of Economics and Management Strategy
This paper studies how altruism between managers and employees affects relational incentive contracts. To this end, we develop a simple dynamic principal{\textendash}agent model where both players may have feelings of altruism or spite toward each other. The contract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal. We find that altruism undermines the credibility of a threat of dismissal but strengthens the credibility of a bonus. Among others, these two mechanisms imply that higher altruism sometimes leads to higher bonuses, whereas lower altruism may increase productivity and players' utility in equilibrium.